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Everything You Need to Know About Unsecured Debt
●December 23, 2019●6 minute read
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Unsecured personal loans at a glance
What is an unsecured loan? When you’re looking for short-term finance, the terms ‘secured’ and ‘unsecured’ tend to pop up a lot. The most basic unsecured loan definition is that it’s a form of finance that can be approved without collateral. Basically, this means that you don’t have to provide an asset like your car or home as security for the loan. If you stop making repayments on unsecured loans, lenders do not have the right to seize your assets.
It may sound almost too good to be true – a loan with no consequences. Yet, that isn’t necessarily the case. Unsecured loans can be a great finance option for a range of reasons, but there are some disadvantages worth considering.
In this article, we’ll run you through everything you need to know about unsecured debt and clear up a few common misconceptions.
What’s the difference between a secured and unsecured loan?
If unsecured loans are loans that don’t require collateral, then naturally it’s the opposite case for secured loans. Secured loans are forms of finance that are backed by an asset, like a house (mortgage loans) or a vehicle (personal loans). The asset provided acts as collateral for the loan, so if you default on repayments, the lender can legally repossess your asset. This agreement is usually outlined in your loan contract with the lender.
Unsecured loans aren’t tied to any of your assets, so if you default on your loan repayments, then a lender can’t seize your property as payment.
What are examples of unsecured loans?
There are several types of unsecured loans. Some common examples of where you might encounter unsecured debt include:
- Credit cards. Even though you probably don’t think of them as ‘loans’ you are borrowing money whenever you make credit card purchases.
- Personal loans. You can get unsecured personal loans from banks and other lenders to use for private purchases.
- Consolidation loans. If you apply for a loan with a lender to consolidate your credit debts, it will typically be unsecured.
What is a personal loan?
A personal loan is money borrowed from a lender that you pay back in fixed repayments typically over a short period of time. They are not the same as business or corporate loans and can only be used for personal purposes. Basically, this means you could use the loan to pay for expenses like renovations, vet bills, or travel. Ultimately, personal loans can be either secured or unsecured.
Credit reporting with a secured vs unsecured loan
All lenders can (and will) report your payment history on both secured and unsecured loans to credit reporting agencies. These agencies collect information on your credit history to calculate an overall score of your creditworthiness.
Late payments or defaults will be listed on your credit report and may impact your ability to get finance in the future. Should you take out a secured loan and a lender is forced to repossess your assets, this will also be recorded in your credit report.
Find out more about our commitment to positive credit reporting here.
Can you get an unsecured loan with bad credit?
Yes, although it typically isn’t easy to qualify for an unsecured loan if you have a bad credit history. Certain lenders may offer unsecured loans for bad credit, granted they could see that your current financial situation has improved or that you can demonstrate that you can reasonably afford to pay back your loan. In assessing your application, they may look at your income, spending habits and previous debts as well as your credit score.
Benefits of unsecured loans
Loan approval for unsecured loans can be much quicker than on secured loans. This is because there’s no title or any other collateral to evaluate, and the loans are usually smaller. In some cases, you could receive the money on the same day of being approved.
Of course, with a lender like Jacaranda Finance, fast outcomes and speedy payouts can be delivered on both secured and unsecured loans.
Disadvantages of unsecured loans
Higher interest rates
Typically, interest rates on unsecured loans are higher than rates on secured loans because the lender has a higher risk level of the loan not being repaid.
Smaller borrowing amounts
Loan amounts may be smaller since the lender doesn’t have any collateral to seize if you default on payments.
Harder on bad credit
You may need to have a good credit history and a solid income to be approved for an unsecured loan.
Unsecured loans may be difficult to obtain if you do not have much positive credit history or don’t have a regular income. In this case, you may need to find a co-signer with good credit history and a solid income to sign the loan documents with you.
Where can I get an unsecured loan?
Jacaranda Finance is the leader in online lending. We provide hassle-free personal loans for Aussies between $300 and $10,000. Looking for an unsecured personal loan? Jacaranda could have the cash you’ve been searching for.
At Jacaranda, we offer unsecured loans up to the value of $2,000. The best part is you can apply 100% online, whenever you like, across Australia. Our team doesn’t think it should take weeks to get approved for a loan. Gone are the days of waiting in long lines and filling out pages and pages of paper forms. When you apply with Jacaranda, we’ll cut straight to the chase, so you get the cash you need when you need it.
Jacaranda Finance is proud to be a responsible lender. What is a responsible lender? Basically, it means we will never lend cash that an applicant isn’t able to repay. Our team always conduct a thorough and fair assessment of all loan applications. We will do our best to find you an appropriate loan product; however, we can not guarantee approval for every applicant. The good news is, however, that a loan application with Jacaranda is completely free of charge. That means our team will conduct an assessment at no cost. If they are unable to match you with an appropriate loan product, you won’t be required to pay a cent.
What will I need to qualify?
To qualify for one of our unsecured personal loans, you must:
- Be at least 18 years old
- Be an Australian citizen or permanent resident
- Have a regular income for the last 90 days
- Have a valid phone number and email address
Will I need to show documentation?
Yes, we will need a few important documents from you. When you apply with Jacaranda we won’t ask you to complete any paper forms – you won’t even need to provide us with a hard copy of your payslips. Here is what we recommend you have handy whilst completing our 100% online application form:
- Personal details such as an active mobile number and email address;
- Internet banking details
- The reason for your loan
- Your MyGov details (if you’re receiving Centrelink payments);
- Employer and contact details.
At Jacaranda, our customers are our top priority. Our team know that without you there is no us. That’s why customer service is our top priority. Our team are down to earth and realistic. We believe that every customer deserves to be treated with the utmost respect, regardless of the circumstances. Whether you’ve got bad credit or are applying for a personal loan on Centrelink, you can rest easy knowing that Jacaranda will give you a fair go.
If you’ve got questions, our team are always here to help. If you get in touch during AEST business hours, we will do our best to get back to you as soon as possible.
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Written by Jacaranda Team